Residential real estate is still the most preferred asset class for investors in India, with this category drawing 56% of overall investments made in H1 2017. Residential projects including townships across the country, garnered investments of around INR 9, 000 crore which is more than double of the funds that were garnered by commercial and office projects according to a report by JLL India.
These investment amounts encompass both debt and equity investments from foreign and domestic institutions alike. Investments were lower in H1 2017 for the office asset category in comparison to the same period in 2016 on account of a lower number of equity based deals. In case of the residential segment, the growing confidence of global investors on account of policy reforms has led to a steady increase in investments. The implantation of the Real Estate (Regulation and Development) Act, 2016 or RERA along with the Benami Property Act and Goods and Services Tax (GST) hold the promise to make the residential real estate segment more transparent than ever.
In one of the biggest investment transactions taking place in the quarter, Piramal Fund Management offered a Rs.1,800 crore loan to Lodha Developers while Sare Homes also raised Rs.435 crore from KKR and Altico Capital for its township project in Gurgaon. According to industry experts, the investment preferences are majorly driven by higher demand for homes across the growing middle classes in India and also the thrust on affordable housing. According to market experts, while people are bullish about offices on account of the demand-supply index, there is a need to consider the fact that the ratio of GDP to mortgage in the country is lower than 10% which indicates that residential realty will continue to attract investments for at least the next two decades.
There is a higher number of equity-based deals in the residential real estate segment. The RBI has also lowered the repo rate to 6% (a cut of 0.25 basis points) and this should boost overall affordability for prospective homebuyers and enhance demand for affordable housing throughout the country. This move should positively enhance sales volumes in the festive season this year where several new projects are usually launched. Real estate has also witnessed a surge in foreign investments with the sector going through a major transformation through the focus on affordable housing, RERA and REITs (Real Estate Investment Trusts) while domestic investors are also coming on-board rapidly.